Media

The Financial Times has a piece in it today. The writer calls the euro crisis a spiral of doom, and he suggests more some kind of cohesive plan or strategy about European banks. In fact, the debate about what to do about the eurozone swings anywhere from get out of it, which you hear most prominently in Greece, to, on the other end of the spectrum, some sort of United States of Europe, a virtual full integration of the various national states. And then on that spectrum you have lots of proposals in between.

Now joining us to talk about the debate is Malcolm Sawyer. He's a professor of economics at the University of Leeds in U.K. He's managing editor of International Review of Applied Economics. He's currently working on a project on financialization, economy, society, and sustainable development. And he's coming to us today from Leeds. Thanks for joining us, Malcolm.

JAY: So what is your take on all of this? You know, on the sort of even progressive side, you know, you could say left of center and wherever, there the debate seems to be raging just as furiously whether there should be more centralization in Europe or should—less, and should various countries get out. What's your take?

SAWYER: Well, I think there are a number of sort of separate questions involved. If we take the issue to do with the banking union, what we have currently is a set of national banks operating on national banking systems, to some degree with their own regulation—it's not always clear who has responsibility for them, for example, who would be undertaking deposit insurance or who would be bailing them out if that were the case. And the proposals, really, in terms of banking union are to move that to the European level, so that there's some sort of degree of integrated financial system, in the sense that there would be a common set of regulations, that who was responsible for deposit insurance, who was responsible for any bailout, and so on will become much clearer than it is currently.

So I think a second set of questions is, of course, how would that system actually be operated, and would it be operated in a way which was conducive to economic prosperity. And I think the problem at the moment is that much of the debate is over forming some kind of union, and not enough attention is being paid to how that union would in practice operate and whether it would operate in the interests of workers and the interests of economic prosperity.

JAY: Yeah, I mean, isn't that the real question? I mean, one can imagine all kinds of ways to restructure Europe, but you've got to first ask and answer the question, restructure Europe for whom, because, you know, people on the left are saying that, you know, the more centralization you have, what you're really doing is handing more power to the financial elites of Europe, and Germany in particular, and you can't remove the political context of who's got power right now in Europe when you think about what restructuring means.

SAWYER: Yes, I think that's right. And also alongside, for example, the suggestions over a fiscal union or some sort of political union goes along suggestions of what is usually called structural reform. Now, structural reform in practice would mean adoption of a much more neoliberal agenda. So it is also seeking to impose a particular set of policies on countries under this heading of structural reform.

Okay. If we take the example of the proposals, the idea of some sort of fiscal union, whilst I think from the way in which a single currency would operate, some form of fiscal union, some form of fiscal transfer taking place is rather desirable, on the other hand, one would have to ask the question, how would this fiscal union be operated? Would it in effect just impose pre-Keynesian ideas and say, well, the budget has to be balanced come what may? And is this a real way of imposing austerity through another route? So there's no purpose, really, constructing a fiscal union unless that fiscal union is operated in a way which would stimulate economic activity and indeed have a large degree of transfers of resources from the richer countries to the poorer countries.

JAY: So I guess there's sort of short-term and longer-term way of looking at this. In terms of the shortest term, with some of the countries in such severe crisis, you know, I guess Greece being in the most serious situation, what do you think people should be demanding vis-à-vis the eurozone? Like, for example, in Greece the debate's hot and heavy weather to stay in or not. You know, some people are saying you can renegotiate the whole package and all the rest and not have such austerity and still stay in the eurozone. And other people are saying that's naive; if you really want to make the kind of reforms you're talking about, you can't do it within the eurozone. What's your take on this debate?

SAWYER: Well, I think if one was coming at it from a sort of left perspective and the sort of economic reforms that one would want to introduce in Greece, staying within the euro will make that more difficult, in that what is being imposed on Greece through the memorandum of understanding is not only fiscal austerity but a whole set of measures of privatization, liberalization, rejection of the minimum wage, and so forth.

But I think also, particularly the case of Greece, but in a number of other countries as well, in effect one of the major problems they face is that they have a very severe current account deficit, they have a very severe balance of payments problem. And being within a single currency means that they cannot devalue, that they therefore will find it very difficult, if not impossible, to stimulate the economy themselves through increased exports and so forth, so that they are rather stuck. So what I think a country like Greece requires is a guarantee of the funding of their current account deficit whilst they restructure their economy, but restructuring it along quite different directions to that which would be envisaged by the troika to the European Union.

JAY: Well, you've written that the current bailout policies are essentially like sticking a bit of plaster on a crack that's bound to crack open again. So if that's the case, what do you think should be done?

SAWYER: It's very difficult to see what the sort of way forward is. I think there firstly has to be, as it were, a recognition that the way in which the Economic and Monetary Union was constructed had what I've elsewhere called design faults. It was really badly designed, and so it doesn't operate in a very conducive way.

That is overlaid with the attempts at various stages to impose fiscal austerity, and now fiscal austerity currently is having the effects of, obviously, creating recession, but at the same time not really going any way to reducing the budget deficit. So at a very general level, I would see that one way of proceeding has to be, ultimately, a recognition that the Economic and Monetary Union is poorly constructed and that there has to be a quite different set of policy arrangements for the Economic and Monetary Union. In one direction, I would see that as to adopt Keynesian policies of the use of budget, fiscal, monetary policy to stimulate demand; in another direction, to reconstruct economies along lines which ultimately function better, not to impose neoliberal agendas on the countries concerned.

JAY: And if you look at the real politics at the moment, it seems like even with, you know, the change in president of France—but still the austerity hawks still seem to be holding most of the reins of power, even if some of the public discourse has sort of moved, questioning whether there's been any success, austerity. I think you wrote in one of your pieces that there's not any examples of austerity actually giving rise to growth. And we hear that even from Mario Monti in Italy, you know, where he said on—in a recent interview he said, you know, we've done everything you've said, but where's the growth? You know, we've done the financial discipline, but there's no growth happening. But that doesn't seem to be changing the weight of where things are headed. So, given that, assuming there is no big change in direction in Europe, how dangerous a moment are we, in terms of the global economy?

SAWYER: I think we're in a considerably dangerous position. There still is the possibilities of collapse of various parts of the banking system, there's still the possibilities of countries like Greece being unable to fund their deficit and therefore having to go for yet more austerity.

But more generally it's going to involve the European countries in slow growth, if any growth at all, a long period of austerity for most countries, for high levels of unemployment. People are now beginning to talk about no or little growth the next ten years type of scenario, so that within Europe I think there are considerable dangers of these sort of further crises and, at best, a long period of austerity.

How much it will affect the rest of the world I find difficult to judge, because the European Union is fairly close to a closed economy. It doesn't do a great—in some sense it doesn't do a great deal of trade outside of its borders. About 10, 15 percent of its GDP is accounted for by exports, so that the impact on the rest of the world may be not as great as one might expect. But within Europe I think there are very considerable dangers.

JAY: Well, the danger people have suggested is that it is not so much the direct loss of demand because of European recession, but the problem of either a sovereign default or a major banking default, being what they keep calling a Lehman type event triggering panic in the financial markets, and that leading to a deeper crisis. I mean, is that really possible? Or is there simply enough money in Europe that if they have to, they can keep throwing money at it just to not go over the brink?

SAWYER: Well, I think in one sense there's enough money, for example, to fund the Greek budget deficit or to fund any Spanish deficit or whatever it might be, because in a sense when you're short of full employment (and clearly Europe is well short of full employment), if you can stimulate demand, that in turn will generate the funds in order to provide the means by which you can repay the debt, so that it is not really a matter of a shortage of money [incompr.] also in the case of Europe, and many other countries as well, of course, there isn't a shortage of resources. There's plenty of resources, plenty of people looking for work that could be put to good use and to be employed. So it's not a real lack of money that—from a Keynesian point of view, if investment and government demand goes up, that will stimulate the economy, that will produce more savings, and that will provide the means, in effect, to fund that investment and government spending.

JAY: And what do you make of the argument we're hearing from some of the left that a lot of what's happening here in terms of the policy response to the crisis is that some of the elites in Europe want to take advantage of the crisis and sort of break the back of the European working class to the welfare state, that this is a good opportunity to kind of reshape what Europe is?

SAWYER: I think there are certainly elements of that, not so much looking at Europe at the moment, but they're looking at the case of the—in the U.K., then you do see quite strong elements of the right being able to use this as a way of saying, well, look, the government doesn't have money to continue with welfare payment, so we've got to cut back on welfare payments; all this, the causes of unemployment, are because the labor markets are not flexible enough, so we need policies in that direction. So I think there is a sense in which particularly the neoliberals and those in government are using this as a kind of front to be able to implement policies which would not otherwise see the light of day.

JAY: Alright. Thanks very much for joining us, Malcolm.

SAWYER: Okay. Thanks.

JAY: And thank you for joining us on The Real News Network.

And don't forget we're in the midst of our spring/summer fundraising campaign. A generous couple of donors have put up $50,000 matching grant. And you know we don't get money any other way except from viewers and donors. We get very, very little, you know, big major foundation money. In fact, this year we don't have any. We're really dependent on viewers like you. So, please, if you click over here, every buck you give will be matched and you'll trigger another dollar until we reach our spring goal of $100,000.

Thanks very much again for joining us on The Real News Network.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Paul Jay is CEO and senior editor of The Real News Network (TRNN). As senior editor of TRNN, Paul has overseen the production of more than 4,500 news stories and is the host of TRNN's news analysis programming. As executive producer of CBC Newsworld's independent flagship debate show "counterSpin" he produced more than 2,000 shows during its 10 years on the air. He is an award-winning documentary filmmaker with more than 20 films under his belt and was founding chair of Hot Docs!, the Canadian International Documentary Film Festival (now the largest in North America).

Media

The Financial Times has a piece in it today. The writer calls the euro crisis a spiral of doom, and he suggests more some kind of cohesive plan or strategy about European banks. In fact, the debate about what to do about the eurozone swings anywhere from get out of it, which you hear most prominently in Greece, to, on the other end of the spectrum, some sort of United States of Europe, a virtual full integration of the various national states. And then on that spectrum you have lots of proposals in between.

Now joining us to talk about the debate is Malcolm Sawyer. He's a professor of economics at the University of Leeds in U.K. He's managing editor of International Review of Applied Economics. He's currently working on a project on financialization, economy, society, and sustainable development. And he's coming to us today from Leeds. Thanks for joining us, Malcolm.

JAY: So what is your take on all of this? You know, on the sort of even progressive side, you know, you could say left of center and wherever, there the debate seems to be raging just as furiously whether there should be more centralization in Europe or should—less, and should various countries get out. What's your take?

SAWYER: Well, I think there are a number of sort of separate questions involved. If we take the issue to do with the banking union, what we have currently is a set of national banks operating on national banking systems, to some degree with their own regulation—it's not always clear who has responsibility for them, for example, who would be undertaking deposit insurance or who would be bailing them out if that were the case. And the proposals, really, in terms of banking union are to move that to the European level, so that there's some sort of degree of integrated financial system, in the sense that there would be a common set of regulations, that who was responsible for deposit insurance, who was responsible for any bailout, and so on will become much clearer than it is currently.

So I think a second set of questions is, of course, how would that system actually be operated, and would it be operated in a way which was conducive to economic prosperity. And I think the problem at the moment is that much of the debate is over forming some kind of union, and not enough attention is being paid to how that union would in practice operate and whether it would operate in the interests of workers and the interests of economic prosperity.

JAY: Yeah, I mean, isn't that the real question? I mean, one can imagine all kinds of ways to restructure Europe, but you've got to first ask and answer the question, restructure Europe for whom, because, you know, people on the left are saying that, you know, the more centralization you have, what you're really doing is handing more power to the financial elites of Europe, and Germany in particular, and you can't remove the political context of who's got power right now in Europe when you think about what restructuring means.

SAWYER: Yes, I think that's right. And also alongside, for example, the suggestions over a fiscal union or some sort of political union goes along suggestions of what is usually called structural reform. Now, structural reform in practice would mean adoption of a much more neoliberal agenda. So it is also seeking to impose a particular set of policies on countries under this heading of structural reform.

Okay. If we take the example of the proposals, the idea of some sort of fiscal union, whilst I think from the way in which a single currency would operate, some form of fiscal union, some form of fiscal transfer taking place is rather desirable, on the other hand, one would have to ask the question, how would this fiscal union be operated? Would it in effect just impose pre-Keynesian ideas and say, well, the budget has to be balanced come what may? And is this a real way of imposing austerity through another route? So there's no purpose, really, constructing a fiscal union unless that fiscal union is operated in a way which would stimulate economic activity and indeed have a large degree of transfers of resources from the richer countries to the poorer countries.

JAY: So I guess there's sort of short-term and longer-term way of looking at this. In terms of the shortest term, with some of the countries in such severe crisis, you know, I guess Greece being in the most serious situation, what do you think people should be demanding vis-à-vis the eurozone? Like, for example, in Greece the debate's hot and heavy weather to stay in or not. You know, some people are saying you can renegotiate the whole package and all the rest and not have such austerity and still stay in the eurozone. And other people are saying that's naive; if you really want to make the kind of reforms you're talking about, you can't do it within the eurozone. What's your take on this debate?

SAWYER: Well, I think if one was coming at it from a sort of left perspective and the sort of economic reforms that one would want to introduce in Greece, staying within the euro will make that more difficult, in that what is being imposed on Greece through the memorandum of understanding is not only fiscal austerity but a whole set of measures of privatization, liberalization, rejection of the minimum wage, and so forth.

But I think also, particularly the case of Greece, but in a number of other countries as well, in effect one of the major problems they face is that they have a very severe current account deficit, they have a very severe balance of payments problem. And being within a single currency means that they cannot devalue, that they therefore will find it very difficult, if not impossible, to stimulate the economy themselves through increased exports and so forth, so that they are rather stuck. So what I think a country like Greece requires is a guarantee of the funding of their current account deficit whilst they restructure their economy, but restructuring it along quite different directions to that which would be envisaged by the troika to the European Union.

JAY: Well, you've written that the current bailout policies are essentially like sticking a bit of plaster on a crack that's bound to crack open again. So if that's the case, what do you think should be done?

SAWYER: It's very difficult to see what the sort of way forward is. I think there firstly has to be, as it were, a recognition that the way in which the Economic and Monetary Union was constructed had what I've elsewhere called design faults. It was really badly designed, and so it doesn't operate in a very conducive way.

That is overlaid with the attempts at various stages to impose fiscal austerity, and now fiscal austerity currently is having the effects of, obviously, creating recession, but at the same time not really going any way to reducing the budget deficit. So at a very general level, I would see that one way of proceeding has to be, ultimately, a recognition that the Economic and Monetary Union is poorly constructed and that there has to be a quite different set of policy arrangements for the Economic and Monetary Union. In one direction, I would see that as to adopt Keynesian policies of the use of budget, fiscal, monetary policy to stimulate demand; in another direction, to reconstruct economies along lines which ultimately function better, not to impose neoliberal agendas on the countries concerned.

JAY: And if you look at the real politics at the moment, it seems like even with, you know, the change in president of France—but still the austerity hawks still seem to be holding most of the reins of power, even if some of the public discourse has sort of moved, questioning whether there's been any success, austerity. I think you wrote in one of your pieces that there's not any examples of austerity actually giving rise to growth. And we hear that even from Mario Monti in Italy, you know, where he said on—in a recent interview he said, you know, we've done everything you've said, but where's the growth? You know, we've done the financial discipline, but there's no growth happening. But that doesn't seem to be changing the weight of where things are headed. So, given that, assuming there is no big change in direction in Europe, how dangerous a moment are we, in terms of the global economy?

SAWYER: I think we're in a considerably dangerous position. There still is the possibilities of collapse of various parts of the banking system, there's still the possibilities of countries like Greece being unable to fund their deficit and therefore having to go for yet more austerity.

But more generally it's going to involve the European countries in slow growth, if any growth at all, a long period of austerity for most countries, for high levels of unemployment. People are now beginning to talk about no or little growth the next ten years type of scenario, so that within Europe I think there are considerable dangers of these sort of further crises and, at best, a long period of austerity.

How much it will affect the rest of the world I find difficult to judge, because the European Union is fairly close to a closed economy. It doesn't do a great—in some sense it doesn't do a great deal of trade outside of its borders. About 10, 15 percent of its GDP is accounted for by exports, so that the impact on the rest of the world may be not as great as one might expect. But within Europe I think there are very considerable dangers.

JAY: Well, the danger people have suggested is that it is not so much the direct loss of demand because of European recession, but the problem of either a sovereign default or a major banking default, being what they keep calling a Lehman type event triggering panic in the financial markets, and that leading to a deeper crisis. I mean, is that really possible? Or is there simply enough money in Europe that if they have to, they can keep throwing money at it just to not go over the brink?

SAWYER: Well, I think in one sense there's enough money, for example, to fund the Greek budget deficit or to fund any Spanish deficit or whatever it might be, because in a sense when you're short of full employment (and clearly Europe is well short of full employment), if you can stimulate demand, that in turn will generate the funds in order to provide the means by which you can repay the debt, so that it is not really a matter of a shortage of money [incompr.] also in the case of Europe, and many other countries as well, of course, there isn't a shortage of resources. There's plenty of resources, plenty of people looking for work that could be put to good use and to be employed. So it's not a real lack of money that—from a Keynesian point of view, if investment and government demand goes up, that will stimulate the economy, that will produce more savings, and that will provide the means, in effect, to fund that investment and government spending.

JAY: And what do you make of the argument we're hearing from some of the left that a lot of what's happening here in terms of the policy response to the crisis is that some of the elites in Europe want to take advantage of the crisis and sort of break the back of the European working class to the welfare state, that this is a good opportunity to kind of reshape what Europe is?

SAWYER: I think there are certainly elements of that, not so much looking at Europe at the moment, but they're looking at the case of the—in the U.K., then you do see quite strong elements of the right being able to use this as a way of saying, well, look, the government doesn't have money to continue with welfare payment, so we've got to cut back on welfare payments; all this, the causes of unemployment, are because the labor markets are not flexible enough, so we need policies in that direction. So I think there is a sense in which particularly the neoliberals and those in government are using this as a kind of front to be able to implement policies which would not otherwise see the light of day.

JAY: Alright. Thanks very much for joining us, Malcolm.

SAWYER: Okay. Thanks.

JAY: And thank you for joining us on The Real News Network.

And don't forget we're in the midst of our spring/summer fundraising campaign. A generous couple of donors have put up $50,000 matching grant. And you know we don't get money any other way except from viewers and donors. We get very, very little, you know, big major foundation money. In fact, this year we don't have any. We're really dependent on viewers like you. So, please, if you click over here, every buck you give will be matched and you'll trigger another dollar until we reach our spring goal of $100,000.

Thanks very much again for joining us on The Real News Network.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Paul Jay is CEO and senior editor of The Real News Network (TRNN). As senior editor of TRNN, Paul has overseen the production of more than 4,500 news stories and is the host of TRNN's news analysis programming. As executive producer of CBC Newsworld's independent flagship debate show "counterSpin" he produced more than 2,000 shows during its 10 years on the air. He is an award-winning documentary filmmaker with more than 20 films under his belt and was founding chair of Hot Docs!, the Canadian International Documentary Film Festival (now the largest in North America).